{"id":2860,"date":"2019-10-11T01:03:09","date_gmt":"2019-10-10T18:03:09","guid":{"rendered":"https:\/\/capitalcambodia.com\/?p=2860"},"modified":"2019-10-11T07:42:57","modified_gmt":"2019-10-11T00:42:57","slug":"impact-of-property-tax-reform","status":"publish","type":"post","link":"https:\/\/capitalcambodia.com\/impact-of-property-tax-reform\/","title":{"rendered":"Impact of property tax reform"},"content":{"rendered":"

With calls for reform on property tax, the Kingdom\u2019s real estate sector holds its breath<\/em><\/p>\n

Last month the International Monetary Fund (IMF) released findings from a working paper that took aim at the Kingdom\u2019s property tax regime and called for reform in the name of financial inclusion.<\/p>\n

\u201cIMF Working Paper: Advancing Inclusive Growth in Cambodia\u201d gave a 26-page analysis of options for tax reform and their impact on Cambodia\u2019s gross domestic product (GDP).<\/p>\n

Through careful consideration, the IMF\u2019s research found that property tax currently generates just 0.1 percent of GDP, but an increase in property tax could hold the potential to increase GDP up to 2.7 percent. By contrast, the paper noted that an increase in value-added tax (VAT) and income tax would only generate GDP growth up to 1.8 percent and 0.3 percent respectively.<\/p>\n

Mr Yasuhisa Ojima was recently appointed Resident Representative in Cambodia for the IMF and points out that the second section of the study is most relevant to inequality, but cannot say if the study\u2019s findings will be considered by the Cambodian government.<\/p>\n

\u201cThe working paper describes research in progress and is published to elicit comments and to encourage debates. Thus, we are not sure whether these ideas will be implemented by the authorities at this point.\u201d<\/p>\n

The research itself praised Cambodia\u2019s General Department of Taxation (GDT) \u2013 which it claims had increased tax revenue from less than 10 percent of GDP in 2007, to 17 percent of GDP in 2017. Last year tax revenue reached $2.2 billion, up 17 percent from 2017 and just last week the GDT announced it had already collected 85.33 percent of their annual tax revenue for the year.<\/p>\n

The IMF working paper goes on to say, \u201cHowever, Cambodia\u2019s revenue sources are skewed towards VAT and import taxes. Out of total tax revenue, 61 percent of total tax revenue is generated by VAT.\u201d<\/p>\n

This, the paper admits, is relatively high when contrasted with the region and cites VAT as one of the most regressive sources of taxation \u2013 given that it affects all equally in relation to their consumption. It states that progressive taxes, personal income, capital income and capital gains tax made up just 4.2 percent of GDP, which is considered by many as strikingly low.<\/p>\n

\u201cSimilarly, revenue from property taxation accounts for only 0.1 percent of GDP, which is also very low compared with regional peers (e.g. Indonesia, Philippines and Malaysia)\u201d the study finds.<\/p>\n

\"\"
Tom O\u2019Sullivan CEO of Realestate.com.kh<\/figcaption><\/figure>\n

\u201cThis is despite the progressive profile of property taxation, which is predominantly levied on richer households in the urban areas.\u201d<\/p>\n

Explaining the benefits, Ojima admits that reformation of property tax as the paper suggests would not likely bring about any immediate benefits, \u201cWe used a general equilibrium model for analysis which e.g. assumes flexible prices. In the short run prices are sticky, so the modelled benefits would only materialise in the medium to long term.\u201d<\/p>\n

In September the GDT reported that stamp duty on property transfers in 2019 had increased by 60.18 percent compared with the same period last year and that $227 million of the $1.85 billion it had collected by October 2018 was derived from property tax. This, coupled with the new tax base for stamp duty tax introduced in July this year, highlights at least a fledgling commitment to addressing the need for more progressive taxes, particularly within the real estate sector.<\/p>\n

\u201cA reform on property-related tax would certainly aid the ability to fast-track some of the key infrastructure projects in Cambodia, that will increase connectivity, trade, travel, accessibility and more,\u201d says Tom O\u2019Sullivan, chief executive officer of Realestate.com.kh who echoes the IMF\u2019s notion that increased revenue generated through property tax could be used to fund infrastructure projects.<\/p>\n

\u201cMost importantly any revision, which of course means an increase in property tax must remain competitive with other emerging markets in the region. This is very important if we want to continue to facilitate international investment in the property sector,\u201d says O\u2019Sullivan.<\/p>\n

The argument for remaining competitive regionally is often utilised to justify a range of matters \u2013 from lower taxes to lower wages \u2013 but, according to the ADB\u2019s 2018 study, \u201cA Comparative Analysis of Tax Administration in Asia and the Pacific\u201d, property taxation was an area that few lower income countries had capitalised on.<\/p>\n

\u201cTaxes on property average 4.4 percent of total revenue and are almost 25 percent below the OECD average; further, property taxes are heavily concentrated in a small number of high-income economies (Australia; Hong Kong, China; New Zealand; the Republic of Korea; Singapore; and Taipei, China), meaning that their contribution in most other economies is very small,\u201d the report states.<\/p>\n

Of course this was before the more recent stamp duty reform but, nevertheless, the risk of Cambodia\u2019s competitiveness being diminished by property tax perhaps stems from a heavy reliance on both the construction and real estate sectors for GDP growth.<\/p>\n

According to the Ministry of Economy and Finance, the growth rate in Cambodia\u2019s construction sector in 2018 was 18.1 percent and the National Bank of Cambodia writes that construction and real estate sectors are key contributors to annual GDP growth in 2018.<\/p>\n

However, numerous critics, economists and policy advisers have long recognised the need for diversification \u2013 as with the EU\u2019s Everything-But-Arms trade agreement and the garment manufacturing industry of Cambodia, disaster can strike. The gradual slowdown of the Chinese economy, coupled with prime minister Hun Sen\u2019s directive banning online gambling and the tragic building collapse in Sihanoukville earlier this year have all highlighted threats to both the construction and real estate sectors in the Kingdom.<\/p>\n

O\u2019Sullivan fears that added tax reform \u2013 even if done with financial inclusivity and infrastructure updates in mind \u2013 could add to these woes.<\/p>\n

\u201cInvestors accept the current landscape in terms of property tax. Obviously, the biggest risk is that a change or increase in property tax could steer investors and developers towards other neighbouring markets,\u201d he argues, adding that any benefits reaped by a reformed property tax regime would take some time to be seen.<\/p>\n

\u201cIn the short term, the real estate market will take a bit of a hit because buyers will sit back and wait for the dust to settle before deciding to purchase. Local and international buyers will wait and see. In fact, there is probably an element of that already with the report being released.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

With calls for reform on property tax, the Kingdom\u2019s real estate sector holds its breath<\/p>\n","protected":false},"author":3,"featured_media":2272,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_FSMCFIC_featured_image_caption":"","_FSMCFIC_featured_image_nocaption":null,"_FSMCFIC_featured_image_hide":null,"footnotes":""},"categories":[3],"tags":[47,110],"yoast_head":"\nImpact of property tax reform - CapitalCambodia<\/title>\n<meta name=\"description\" content=\"With calls for reform on property tax, the Kingdom\u2019s real estate sector holds its breath\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/capitalcambodia.com\/impact-of-property-tax-reform\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Impact of property tax reform - 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